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Who Pays for Long-Term Care?

How much will Uncle Sam help foot the bill?

This is the second article in a six-part series. Click here for Part 1.

Who pays for long-term care? Various surveys reveal that most folks think Medicare does. In part, that's true. According to the Georgetown University Long-Term Care Financing Project, in 2002 Medicare paid 17% of the total spent on such services. But Medicaid paid for 47%. If the government only paid for two-thirds of the costs, who paid the rest? Private insurance paid for 10% while other public and private programs picked up another 5%. The remaining 21% came from families -- out of pocket!

Given these data, it seems only prudent to see how the major payer, the federal government, pays for long-term care. And, because the prevalent belief is that Medicare is the major payer, let's turn to that program first, mostly because Medicare is the retiree medical insurance program with which most people are familiar.

Medicare basicsFor retirees, Medicare kicks in at age 65, and it has two parts. Part A covers hospitalization, while Part B covers doctor visits and various other medical services. For almost all Medicare recipients, Part A is free. Part B, though, has a monthly premium that changes each year. This year the Part B monthly premium is $78.20 per person, but it will rise to $88.50 in 2006. A comprehensive description of Medicare is available in the booklet Medicare and You 2006, published by the Health Care Financing Administration. For the purposes of this discussion, we just need to know that both parts of Medicare may pay for long-term care services.

Part A, the hospitalization portion of the coverage, provides payment for long-term care associated with hospital stays, home health care, hospice care, and skilled nursing care. While many believe that Medicare will always pick up those costs, nothing could be farther from the truth. Medicare covers costs for only medically necessary services provided by doctors or by skilled medical personnel as directed by a physician.

Hospital stay coverage is self-explanatory, but home health care and hospice care are not. Home health care provides coverage for part-time skilled nursing care, physical therapy, speech-language therapy, durable medical equipment (e.g., oxygen, wheelchairs, walkers, hospital beds), and certain other medical supplies and services. To qualify for home health care, a doctor must certify that you are homebound, that medical care at home is necessary, that a medical plan for that care has been prepared, and that a Medicare-approved home health agency will provide that care. Note that Medicare does not pay for 24-hour care, meal delivery, homemaker services (shopping, cleaning, laundry), or personal services (bathing, dressing, toileting). Thus, while some home health services are provided, the needs of a homebound individual who requires 24-hour care are not. Only medically necessary needs are covered.

Hospice care is for the terminally ill. To qualify for hospice services under Medicare, an individual must be determined by an attending physician and the medical director of a Medicare-approved hospice facility to be within six months of death. Services may be provided at the hospice facility or at home. They include medical care and support services; drugs for symptom control and pain relief; short-term respite care (temporary care given by someone else to provide a brief rest to the primary care giver); and other services not necessarily provided by Medicare. Except for a $5 co-pay for prescribed drugs and a 5% co-pay for inpatient respite care, Medicare pays for 100% of these services.

That brings us to nursing home care and its three levels of care. There is skilled nursing care, which is ordered by a physician and provided by licensed medical professionals around the clock. There is intermediate care, which is again ordered by a physician but provided by licensed medical personnel only at certain periods of the day. And, finally, there is custodial care, which does not require the services of skilled medical personnel but does require assistance in performing the chores or activities of daily living. Be aware that the vast majority of nursing home stays arise because of the need for custodial care, not the need for skilled nursing or intermediate care.

Medicare pays for only one type of nursing home stay, skilled nursing care at a Medicare-approved facility. To qualify for nursing home reimbursements under Medicare, the resident must have been hospitalized for at least three days prior to transfer to that facility. That means no one goes directly from home to the skilled nursing facility without a prior hospital stay. Once in a Medicare-approved facility, Medicare covers your costs for a semi-private room, meals, skilled nursing and rehabilitative services, plus medically necessary supplies and services. These costs are fully covered for the first 20 days. After that, you must pay $114 per day for the 21st through the 100th days of the stay. On the 101st day, all costs must be borne entirely by you. And that, folks, is all she wrote for Medicare nursing home coverage. After 100 days in a nursing home, the average $176 daily cost of a semi-private room must come from personal assets, insurance, or Medicaid, because Medicare will not pay one more cent.

Then comes MedicaidAfter 100 days in a nursing home, those without long-term care insurance begin thinking about Medicaid. Medicaid is a medical welfare program funded jointly by the federal and state governments and administered solely by each state under general legal guidelines. In essence, it is a program for those without assets or income sufficient to pay for the services needed.

While each state determines eligibility for Medicaid under its own rules, in general the person receiving such services may retain a very modest amount of personal assets (less than $2,000) and only about $30 per month in income for personal needs. Certain assets such as a home, its contents, and one car are exempt. Everything else goes to the state to pay for the care provided, and that includes any pension and/or Social Security income.

In addition to the house and one car, federal guidelines allow the spouse of someone who is in a Medicaid-approved nursing facility to keep between $17,856 and $89,280 in other assets, plus an income between $1,451 and $2,232 monthly. The exact amounts of exempted assets and income are determined by the individual states. All remaining assets go to help pay for the nursing home care of the other spouse. And by the way, Medicaid authorities, not the family, will select the nursing home facility.

What's left, then, if we don't or can't use Medicaid? Just us and the insurance companies, Fool.